Context needed ahead of super guarantee rate changes

The federal government is committed to increasing the guaranteed superannuation level from 9.5 per cent to 12 per cent and arguments against the move continue but for the wrong reasons.

The Grattan Institute is leading the charge. It concedes that its modelling will produce the outcome it wants, based on the inputs that, at the right levels, support its view that superannuation robs workers’ wages.

The facts are somewhat different when the system is measured from a more holistic economic view and looking at people’s income in both work and retirement.

The think tank acknowledges its work is based on assumptions, which could be questioned.

Next year, Treasury is due to hold its next intergenerational review, which every five years looks at the sustainability of present policies, and using its MARIA model will map out long-term pension needs.

This, too, should provide some context for the coming changes.

Still, Grattan’s latest missive met with the expected torrent of arguably self-interested abuse from the superannuation industry, which was so loud in its protest against the claim that super robs people of wages that it almost invites suspicion.

The reality is when the system started in the late 1980s and early 1990s, one aim was to provide retirement income and another was to offset inflationary wages.

Such a claim can hardly be supported today.

Another reality is that national savings and retirement income have not been studied in depth since Vince Fitzgerald’s report in 1993, which is why it makes sense to look at the issue again before the contribution rate rises and after some obvious low-hanging fruit in the industry is cleaned up.

The Productivity Commission report was centred on the ­efficiency and effectiveness of superannuation, not incomes policy.

The Productivity Commission comes at the issue from a different view, arguing that increasing the superannuation guarantee may have an impact on employment levels, because a boss faced with high costs won’t employ someone.

The impact of the minimum wage on employment was addressed in its 2015 workplace relations report.

That is why it wants the government to have a look at the issue as part of its inquiry into retirement income.

It doesn’t agree with the Grattan view on super robbing people of wages, but is not sure about the impact on employment, a debate that obviously extends to the minimum wage.

The low-hanging fruit being acted on includes closing so-called zombie funds, which are multiple accounts held by people moving jobs but costing them collectively something like $2.7 billion in fees.

There is the default debate that links wages awards to superannuation, which should be cut and the issue is just how.

One version being kicked around Canberra is an extension of the PC’s best-in-class 10 funds from which employers can choose to including 20 funds but rotating five of them each year as a natural selection process.

The governance issue is overblown, but in theory there is no reason to keep bad governance alive just because some super funds are performing well right now.

Like its sometimes banking ­industry parents, the superannuation managers have not complained about this windfall.

Another issue is default fund portability, which is what to do with money contributed as you change funds.

One often forgotten answer is member choice, which means any worker can choose whichever fund they like.

There are allegedly some award defaults that cannot be transportable, which is obviously dumb.

The contribution rate is scheduled to increase by 0.5 per cent a year from 2021, taking it from 9.5 per up to a maximum 12 per cent in 2025.

This means there is plenty of time to decide the level of increases and make the appropriate reforms ahead of the present legislated timetable.

The Grattan report was conflicting because not so long ago it was arguing that the increase in the guaranteed rate would not have an impact on pensions. Now it is saying an increased rate means less pension.

This, of course, is what industry consultants Rice Warner and others are arguing, saying it’s actually good for the overall budget and economy. People save more through super than they do outside the system because the money is managed better.

It argues that, over time, any losses in income tax are more than offset by the tax collected long-term from super and the extra savings are spent in retirement while also saving pension payments.

But the debate is a sensitive one, as the last election showed, with a strong vote against the Labor Party’s franked income tax policies.

NAB has added more grist for the mill yesterday with its updated economic forecasts showing this year’s tax cuts will add 0.1 per cent to GDP growth, as opposed to the RBA rate cut, which will add 0.8 per cent to 2.8 per cent.

This puts the government’s arguments about enough fiscal stimulus into a new light, because it basically says the tax cuts will have no real impact on the economy, but the much-maligned interest rate cuts will.

For the record, NAB is tipping 1.7 per cent average growth this calendar year, increasing to 2.3 per cent next year.

In contrast, the RBA has the economy growing by 2 per cent this year and by 2.8 per cent for the rest of our natural lives.

On the other side, the age pension costs the economy about 2.6 per cent, which is relatively low by world standards. But if the super increase was scrapped, the increase in the cost of the pension, to about 4.6 per cent, would be meaningful. In an ageing economy, that is a big hit.

Tech giants to testify

Representatives of four tech ­giants will appear before a US congressional antitrust committee as part of a review into their market power and impact on private lives.

The review comes as Josh Frydenberg prepares to release the Australian Competition & Consumer Commission report into the power of platforms, which could be as soon as next week.

The Treasurer has yet to decide whether to release the report of its inquiry into Google, Facebook and Australian news and advertising with a formal government response.

The Wall Street Journal reports the US House antitrust committee has summoned representatives from Google, Facebook, Apple and Amazon as part of a review into “online platforms and market power”.

The hearing comes ahead of a major debate in Washington about whether to limit the influence of tech giants over Americans’ lives, and how. Australia is in some respects ahead of the US, with the ACCC having studied the issue for 18 months, including its impact on media.

The issue is not restricted to the Western world, with the China Skinny newsletter reporting a big slump in the appeal of tech giant Baidu, due to concerns over the way it operates. Chinese authorities are also cracking down on practices that Google and others have faced in the West, including directing ­advertisements from its own pop-ups.

Google is banned from operating its search unit in China.

The report said digital ad spending in China is forecast to grow 22 per cent this year.

While Baidu’s share is shrinking, Alibaba’s ad revenue is forecast to be $US27.3bn ($39.4bn) — 63 per cent greater than total ad spending on TV. According to eMarketer, digital ad spending is expected to account for 69.5 per cent of total media ad spend this year, and Alibaba’s digital advertising revenue will be more than double that of Baidu’s.

China Skinny reports Baidu’s market share has fallen from 86 per cent in August 2015 to 64 per cent in May this year. Baidu reported its first net loss in the first quarter.

Friday, May 29, 2020

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